Congress Passes Spending Bill with Several Tax Provisions

Thoughtware Alert Dec 20, 2019
Presenters/Authors
Governmental building with an American Flag

Congress passed the Further Consolidated Appropriations Act (Act) on December 19, 2019. A portion of the Act extends certain tax provisions and provides tax incentives related to the production of energy and green economy jobs. Most of the expired and expiring credits were extended through 2020, with some extended through 2021, 2022 or 2023. The table below summarizes the various extenders included in the bill.

Provisions Related to Families & Individuals

Provisions Related to Incentives for Employment, Economic  Growth & Community Development

Provisions Related to Incentives for Energy Production,  Efficiency & Green Economy Jobs

Other Tax Provisions Expiring December 31, 2019

Expanding & Preserving Retirement Savings

The Act also includes several provisions that mirror those within the Setting Every Community Up for Retirement Enhancement Act of 2019, which the House passed in May 2019. Key items included in the Act related to those provisions are below. Unless otherwise noted, the provisions are effective December 31, 2019.

  • Age for required minimum distributions increased to 72 from 70 1/2
  • Taxpayers allowed to withdraw up to $5,000 from their retirement accounts in the year following the birth or adoption of a child without incurring 10 percent early withdrawal tax
  • Long-term part-time workers must be included in employers’ 401(k) plans (effective December 31, 2020)
  • Creation of “pooled plan” option for companies in different industries to offer defined contribution plans or individual retirement accounts (IRA) to their employees (effective December 31, 2020)
  • Small employer pension plan startup cost credit increased
  • New credit for small employer plans that adopt automatic enrollment
  • Section 401(k) plans allowed to escalate elective contributions up to 15 percent, instead of 10 percent, of an employee’s salary after the first plan year
  • Section 529 education savings plans may be used for apprenticeship program expenses (effective December 31, 2018)
  • Removes Tax Cuts and Jobs Act (TCJA) provision that taxes unearned income received by children at rates applicable to estates and trusts; this income would instead be taxed according to the child’s parent’s rates
  • Defined contribution plan and IRA balances must be distributed by the end of the 10th year after the employee or IRA owner dies, with some exceptions

Disaster Relief

The Act includes provisions for certain forms of tax relief to individuals and businesses affected by major disasters beginning on January 1, 2018, including temporary withdrawals or loans up to $100,000 from retirement accounts without penalty and recontributing withdrawals taken out for homes in disaster areas if they didn’t buy or construct a home. It also will provide an employee retention credit and an automatic extension of tax filing deadlines.

Other Provisions

The Act repeals the requirement, originally enacted under the TCJA, that the unrelated business taxable income of tax-exempt organizations be increased by expenses related to qualified transportation fringe benefits, the so-called "church parking tax." While the bill included some TCJA changes, it didn’t include most technical corrections previously identified, notably the ability to take bonus depreciation on qualified improvement property.

In addition, the Act repeals the “Cadillac” tax on high-cost employer health plans, the 2.3 percent excise tax on medical devices and a health insurance industry fee that was scheduled to begin in 2020. It also decreases the tax rate on net investment income of tax-exempt private foundations from 2 percent to 1.39 percent and repeals the provision allowing the rate to be reduced to 1 percent if certain distribution requirements are met.

Please reach out to your BKD trusted advisor or use the Contact Us form below if any of these tax provisions apply to you or if you have questions. Given the retroactive nature of the extended provisions, your trusted advisor can help you determine whether amending a prior-year return would be beneficial in your situation.

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